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Essex Property (ESS) Beats on Q2 FFO Estimates, Raises View

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Residential real estate investment trust (REIT) Essex Property Trust Inc. (ESS - Free Report) reported second-quarter 2018 core funds from operations (FFO) per share of $3.14, beating the Zacks Consensus Estimate of $3.10. Core FFO per share improved 5.7% from the year-ago quarter figure of $2.97.

Results reflect growth in same-property net operating income (NOI) and high occupancy level. Improving economic environment and job growth helped drive housing demand in the prime leasing period, management noted. Moreover, Essex Property raised its guidance for full-year 2018 backed by strength of its second-quarter results.

Total revenues of $348.7 million in the quarter grew 2.8% year over year. The figure also marginally topped the Zacks Consensus Estimate of $348.6 million.

Quarter in Detail

During the reported quarter, Essex Property’s same-property gross revenues grew 2.8% from the prior-year quarter, while same-property NOI improved 3.0% year over year. Financial occupancies of 96.7% expanded 30 basis points (bps) year over year.

Essex Property exited second-quarter 2018 with cash and cash equivalents, including restricted cash of $177.6 million, up from $61.1 million recorded at the end of 2017. As of Jul 30, 2018, the company had $1.2 billion in undrawn capacity on its unsecured credit facilities.

Notably, the company did not issue any shares of common stock under its equity distribution program in the second quarter. Moreover, the company did not repurchase any shares of common stock in the quarter.

Outlook

For full-year 2018, the company now projects core FFO per share in the range of $12.44-$12.62, denoting 7 cents per share increase at the mid-point. The Zacks Consensus Estimate for the same is currently pegged at $12.52.

The current-year projection is backed by expectations for same-property revenue growth in the band of 2.6-3.0%, denoting increase of 15 bps at the mid-point, and same-property NOI growth in the 2.5- 3.2% range, marking 15-bps growth at the midpoint.

For third-quarter 2018, the company projects core FFO per share of $3.07-$3.17. The Zacks Consensus Estimate for the same is currently pegged at $3.13.

Conclusion

We are encouraged with the stellar second-quarter performance of Essex Property. With a strong property base and solid balance sheet, the company is likely to leverage on favorable demographic trends, household formation, recovering economy and job market growth in its markets. In fact, Essex Property’s substantial exposure to the West Coast market, which is home to several innovation and technology companies, offers ample scope to boost its top line, over the long term.

However, apartment deliveries are expected to remain elevated in a number of the company’s markets in the near term and aggressive rental concessions and moderate pricing power amid high supply remain concerns for the company.

Essex Property currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Essex Property Trust, Inc. Price, Consensus and EPS Surprise
 

We now look forward to the earnings releases of Lamar Advertising Company (LAMR - Free Report) , Host Hotels & Resorts, Inc. (HST - Free Report) and Outfront Media Inc. (OUT - Free Report) , all of which are scheduled to report quarterly numbers next week.

Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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